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O P I N I O N
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AEC firms have new options for addressing the ‘Duty to Defend’ obligation in indemnification provisions.
A s clients continue to look for ways to transfer greater amounts of project-related risk to design firms, it has become increasingly important for architects and engineers to review their contracts carefully before signing. Indeed, the use of onerous contractual wording by owners and contractors can significantly expand the design professional’s overall exposure, including potentially large uninsured liabilities.
Frances Railey GUEST SPEAKER
AEC firms should recognize that their professional liability policy is intended to cover claims arising from the firm’s professional negligence or malpractice. The policy addresses claims made against the firm for bodily injury and property damage, as well as economic loss. It also allows the firm to indemnify a client if a client is sued due to the firm’s negligence. However, professional liability policies also have a contractual liability exclusion which denies coverage for exposures policyholders agree to accept by contract unless they would otherwise be liable for them under common law. Courts have consistently held that the “duty to defend” in indemnification provisions goes beyond common law liability and is therefore a contractual liability taken on by a firm that would invoke the contractual liability exclusion.
To reduce this uninsured exposure, firms should attempt to negotiate the removal of onerous contractual wording, such as the “duty to defend,” as well as consider exploring new opportunities to transfer risk through insurance. ❚ ❚ The “duty to defend” clause can be a key area of con- troversy in many indemnity agreements. In review- ing their contracts, firms should try to strike any obligations to “defend” a client from claims made by third parties as this obligation will not be covered by their professional liability policy. Historically, that exposure wasn’t covered under any other policy, but that has changed. ❚ ❚ When negotiations fail to remove or modify onerous “duty to defend” wording, design firms can now ex- plore new insurance coverage options. The extended
See FRANCES RAILEY, page 8
THE ZWEIG LETTER December 17, 2018, ISSUE 1276
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